CVS Caremark raises outlook, sees exchanges helping in 2014

(Reuters) - CVS Caremark Corp raised its profit forecast for the year on Tuesday, as sales grew at its drugstore chain and it processed more prescriptions from new clients.

A CVS pharmacy is seen in New York City July 28, 2010. REUTERS/Mike Segar

The company also said it expects private health insurance exchanges to help business next year.

Shares were up 2.4 percent at $63.44 in late-morning trade.

CVS, which operates the No. 2 U.S. drugstore chain and a major pharmacy benefits management business, reported total revenue rose 5.8 percent to $31.97 billion in the third quarter. Wall Street analysts expected $31.53 billion, according to Thomson Reuters I/B/E/S.

Looking ahead to 2014, CVS said its participation in public and private health insurance exchanges should lift revenue in 2014. The company will provide a more detailed forecast for 2014 and beyond at its analyst day on December 18.

Still, CVS Caremark Chief Executive Larry Merlo told investors on a conference call that the company expects large employers to take a “wait-and-see” approach to private health insurance exchanges, especially for active employees, based on his conversations with clients and private exchange operators.

Merlo also said large employers may choose to move retirees to the exchanges over time.

Private exchanges mimic the coverage mandated under the U.S. Affordable Care Act and allow a company’s employees to choose a plan from multiple insurers, a sign of the shifting landscape for corporate healthcare because of rising costs.

CVS, whose Caremark PBM unit competes with Express Scripts Holding Co, said it has completed 75 percent of renewals for the 2014 selling season and has won $1.8 billion in new contracts, net of attrition in its business processing prescriptions for beneficiaries of Medicare Part D. The federal program subsidizes the cost of prescription drugs for seniors.

In August, CVS said it expected to lose about 10 percent of patients enrolled in one of its Medicare prescription drug plans because of a marketing ban imposed earlier in the year by the Centers for Medicare and Medicaid Services.

The CMS ban on some Medicare Part D plan activity arose in January after CVS converted to a new enrollment system, which led to service problems, such as an increase in calls and problems in processing claims. In some instances, patient claims could not be processed at pharmacies.

Merlo reiterated his belief that CVS will have the problems fixed by the end of 2013.

RAISES 2013 PROFIT FORECAST

Revenue in pharmacy services rose 7.8 percent in the quarter, primarily because it processed more claims with new clients.

In CVS’ retail business, sales at stores open at least year were up 3.6 percent, as it filled more prescriptions. But CVS reported a small decline in comparable sales of general merchandise due to “softer traffic.”

“We have seen the promotional environment intensify,” Merlo told analysts on the call.

CVS rival Walgreen Co has reported that sales rose in October but traffic fell 0.6 percent.

CVS, which also competes with Rite Aid Corp, earned $1.25 billion, or $1.03 per share, in the quarter, up from $1 billion, or 80 cents per share, a year earlier.

Excluding items such as a gain from a legal settlement, adjusted profit came to $1.05 per share, 3 cents better than Wall Street expected.

CVS now sees posting adjusted earnings per share of $3.98 to $4.01 this year, versus its prior forecast of $3.90 to $3.96.